UNIVERSITY OF BOHOL

PROFESSIONAL STUDIES

The ASEAN Economic Community: an Economic Outlook

August 8, 2022

Assignment submitted to:

Dr. AMMON DENIS R. TIROL, DM, CPA
as partial fulfillment of the requirements in
BA 205 SURVEY OF ECONOMICS
Summer AY 2021-2022

KEZIAH REVE B. RODRIGUEZ

MASTER OF SCIENCE IN BUSINESS ADMINISTRATION
 The ASEAN Economic Community: An Economic Outlook

Association of Southeast Asian Nations has been standing and holding ground for more
than 50 years. Southeast Asian economic integration is stagnating, and the ASEAN Economic
Community is ceding relevance to better frameworks for regional cooperation. The reason why
ASEAN Economic Community exists is to foster cohesiveness and economic integration, enhance
competitiveness, and build strong resilience and relationship within ASEAN.

According to the data from the ASEAN Development Outlook, the aggregate economic
size of Association of Southeast Asian Nations (ASEAN) member countries in 2019 was $3.2
trillion (Agenda, 2022). Considered as one, this would make ASEAN the world’s fifth-largest
economy, on course to become the fourth largest by 2030. With all of ASEAN’s economic
potential, its ability to affect economic integration is a critical issue. As members integrate more,
this will intensify the collaboration among countries, boosting the association’s economic
productivity. The AEC aims to strengthen ASEAN as a sole market and a key production base for
the world economy. There will be free flow of commodities, services, investments, capital, and
labor within the member countries which encourages the growth of regional production networks
and strengthen the association’s contribution to global supply chains. However, the question now
lies on whether the AEC is the most effective way for ASEAN countries to achieve its promising
objectives.

Taking context from Roderick Macdonald’s research on Southeast Asia and ASEAN
Economic Community, the community is struggling to influence change on the region’s labor
landscape. Labor mobility, most specifically in countries with most skilled workers, can enhance
ASEAN’s economic development by boosting productivity and efficiency, facilitating knowledge
transfer and technological growth. However, all member countries suffer a skilled labor shortage,
which means the goal to benefit from this integration is affected. The lack of skilled labor in ASEAN
member states also aggravates wage inequalities between members. In Thailand, for example,
monthly earnings are three times more than neighboring Cambodia and Laos. Also, Singapore
offers relatively high wages, attracting skilled labor from across ASEAN member countries.

One way the ASEAN countries are achieving its goals is by making the ASEAN FTA or
“Free Trade Area” where the member countries deepened its economic integration through the
AEC. The AEC is an “FTA-plus” economic integration, and its target and level of market integration
are like those of the Economic Partnership Agreement. Although ASEAN’s economic integration
has various issues, it can be evaluated as successful because of its implementation of flexible
liberalization over time. ASEAN’s economic integration is a successful example of economic
integration by developing countries; other developing countries can learn lessons from ASEAN’s
experiences, (Ishikawa, 2021).

While ASEAN has made great progress in developing a substantive program of regional
economic cooperation over the past decade, it still has considerable work to do to achieve the
level of regional economic integration envisaged in the appropriately titled ASEAN Vision 2020
statement. In addition to the pain of economic re-adjustment, and in some cases rehabilitation,
the grouping faces a number of serious challenges in the years ahead.

The most immediate of these challenges will be to restore stability and confidence in the
region's financial markets in the wake of the recent crisis. To date, this task has proven difficult.
The serious economic problems now besieging Indonesia have, to some extent, tainted
perceptions of the entire region, which in turn has led to continuing market 'nervousness' or
volatility across ASEAN.

Moreover, no less important, challenge for ASEAN will be integrating its newer and much
less developed members, namely Vietnam, Burma, and Laos (and presumably Cambodia in the
near future) into both the organization and the mainstream of regional economic development,
growth and liberalization. For ASEAN’s transitional economies this will be a difficult task, made
harder by a lack of resources and an institutional infrastructure largely built to the specifications
of the command economy.

Perhaps more critically for the association, successful integration of its newer members
will be important to ensure that ASEAN does not fracture into a two-tier grouping: the more
developed, near new industrial economies (Singapore, Malaysia, Thailand, Indonesia); and the
lesser developed, newer members. A 'two track ASEAN' would place considerable strain on the
grouping, potentially complicating ASEAN’s consensus-based approach to decision making, and
certainly undermining the rationale of a 'common approach' to economic and trade development
issues.

Lastly, linked both to the issue of integration of new members and the recent regional
economic slowdown, will be to maintain the momentum of ASEAN's trade liberalization and
cooperation agenda. Lastly, the fourth challenge confronting ASEAN Economic Community,
which is related to the issue of sound financial governance and efficient administration, is to
ensure its global competitiveness in the longer term.
 Since the AEC was founded to use economic instruments to achieve political goal, ASEAN
member countries tend toward mixed trade regimes that include elements of protectionism – often
due to patronage structures that shape the options of economic policy decisions, including trade
policy. This tendency in turn impacted the AEC’s initial framework, which does not include a
comprehensive free flow of goods and services policy.

Despite the AEC’s success in cutting trade tariffs, non-tariff policies like quotas and
technical requirements remain to protect domestic markets. As a result, the AEC’s purported
purposes – to liberalize investment and stimulate capital flow – have moved slowly. Some ASEAN
member countries restrict their borders to professional services from other ASEAN countries,
indicating that the AEC has been ineffective in promoting economic integration.

The ASEAN Economic Community is an ambitious economic integration and ASEAN is

also working on many significant issues, such as productivity-driven growth, connectivity, the
digital economy, and regulatory reform. The actual status of efforts toward AEC 2025 is still
insufficient but will materialize as the AEC 2025 blueprint is implemented. ASEAN’s institutions
need to preserve their centrality so the region’s future is shaped by the region, but this will be very
difficult to do in an environment of massive free trade and economic cooperation with non-ASEAN
member countries facilitated by a partnership agreement separate to the AEC.

The introduction of the AEC is an important milestone toward an integrated ASEAN

market. The AEC has a full agenda of discrete and meaningful steps toward realizing its goal of
a single marketplace, and international businesses should be rightfully optimistic about expanding
opportunities in the region.
References
Agenda, D. (2022, January). ASEAN is poised for post-pandemic inclusive growth and
prosperity – here's why. Retrieved from World Economic Forum:
https://www.weforum.org/agenda/2022/01/asean-is-poised-for-post-pandemic-inclusive-
growth-and-prosperity-heres-why/

Ishikawa, K. (2021). The ASEAN Economic Community and ASEAN economic integration.
Journal of Contemporary East Asia Studies, 10, 24-41.
doi:https://doi.org/10.1080/24761028.2021.1891702

Macdonald, R. (2019). Southeast Asia and the ASEAN Economic Community. Cham,
Switzerland: Palgrave Macmillan. doi:https://doi.org/10.1007/978-3-030-19722-3